Markets Are Up Ahead Of Two Big Central Bank Announcements

Markets are modestly in the green early in the European trading
session.

Britain's FTSE 100 is up 0.3%.

France's CAC 40 is up 0.2%.

Germany's DAX is up 0.4%.

Spain's IBEX is up 0.7%.

Italy's FTSE MIB is up 0.8%.

There's a lot of talk coming out of the world's central banks
this week. Later this morning, the European Central Bank and the
Bank of England will update us on their positions on monetary
policy. Economists expect both banks to keep policy easy and
rates unchanged at extraordinarily low levels.

Some economists expect the ECB to get more aggressive as
inflation continues to be below target and unemployment remains
painfully high.

Here's Societe Generale's previews for both meetings:

Bank Of England

In this first MPC meeting of 2014, the Committee will take
stock of the radically improved state of the economy over the
past year. Just over a year ago, in the November 2012
Inflation Report, the MPC predicted 2013 growth of 1.2% but
then downgraded that to 0.9% in February 2013 but since then
its 2013 forecast has been steadily increased to 1.6%.
However, far more dramatic has been the increase in the 2014
forecast from 2.0% to 3.4% from November 2012 to
November 2013. This states most eloquently just how much more
optimistic the MPC has become about the outlook. But should
that raise concerns about inflation pressures? Not
in general - at the same time, the inflation performance has
improved. The rate of inflation has fallen 2.1% yoy. This
takes some of the pressure off the MPC to tighten
policy.

European Central Bank

After much talk of the ECB’s remaining
options, expectations have settled down following the
December meeting. Unless we see outright deflation risks, we
expect no major changes in standard policy measures in the
short term. Instead, the focus is likely to be on liquidity
supporting measures, with focus turning increasingly to the
Comprehensive Assessment (CA). While significant gains are
possible from breaking financial fragmentation, we are
concerned with the latest proposals for the Resolution
Mechanism, in particular the lack of capital backstops which
ultimately may compromise the credibility of the CA. The risk
of fragmentation continuing after 2014 thus remains high. The
January Governing Council meeting is likely to take stock of
these challenges, while keeping policy rates unchanged.